Designing a State-of-the-Art Procurement Strategy with Contract Intelligence

In the context of day-to-day business operations, procurement plays a critical part in creating cost savings for the company. But aspiring procurement leaders and teams aim to deliver strategic value to their organizations beyond optimizing spend.

A key factor for delivering this value is infusing integrated, end-to-end automation into the sourcing process. While it's fair to say that there is a relatively high degree of automation in siloed processes like supplier management, supplier performance management, and sourcing, procurement organizations have not commonly integrated these processes into each other or other enterprise systems.

Without integrated processes, organizations are left with fragmented, disjointed workflows that pose significant limitations to both the value of the technology deployed and benefits delivered to the business. For example, consider a procurement organization that treats supplier and RFP management separately from performance management and contract compliance. In this scenario, what was “bid” by the suppliers is disconnected from what the supplier “did.” Pre-sale systems and processes not aligned with contracts create leakage for the organization, as the intent (i.e., the value) of sourcing contracts is not fully realized.

The good news? This state of affairs presents procurement organizations with significant potential in terms of taking advantage of technology solutions in an end-to-end manner and delivering greater value to user functions.

Building Your Strategy with Technology as a Common Thread

Automation and integration are essential elements for procurement to close gaps and eliminate leakage. But in order to be transformative, those elements must be part of a holistic procurement strategy driven by value objectives relevant for the business. The right approach supported by the right technology can do more than revive otherwise lost opportunities. It can give procurement organizations the ability to help their companies compete and succeed in today’s dynamic and unpredictable business environment.

In contemplating how to build an integrated, automated sourcing process, contracts managed on an advanced contract lifecycle management (CLM) platform are an ideal central pillar around which companies can execute this holistic approach. Contracts are the foundation of a company’s relationship with its suppliers and are the single source of truth for what a company's entitlements and obligations are in a business relationship.

Through contract intelligence technology, sourcing departments can connect contracts to both "upstream" processes like the RFx and "downstream" processes like delivery and performance. Contract intelligence delivers the end-to-end process automation that has long been elusive for sourcing departments—and points the way to creating a state-of-the-art sourcing strategy to stay out in front, today and into the future.

Common Challenges in Enacting a State-of-the-Art Sourcing Strategy

While the benefits of enacting an end-to-end sourcing strategy are clear, this is not an overnight switch. For some, the hard reality is that their procurement departments are not currently designed to execute a state-of-the-art procurement strategy. Therefore, the next step, before you make any process changes, is to recognize and identify obstacles. Challenges commonly fall into these camps:

1. Limitation of digitization tools. Process design is often driven by what available digitization tools can support. Since there is a substantial degree of standardization among sourcing tools, businesses are precluded from realizing any differentiation at the process level.
2. Innovation's isolation. Innovation is typically considered a future state and therefore not regarded as foundational in tools that are part of current process design. This results in innovation initiatives becoming classified as separate, non-operational projects.
3. The static state of contracts. Contracts securing specific partner commitments are often managed as static documents. This makes them difficult to reference and enforce during delivery.
4. Elusive ownership, accountability, and measurement. “Bid-vs.-did” accountability does not lend itself to single ownership and is difficult to measure, resulting in unintended leakage.

Advancing to a State-of-the-Art Procurement Strategy

With these challenges acknowledged, overcoming them and moving toward a modernized procurement strategy is highly achievable. Procurement organizations can surmount most obstacles by:

• Integrating the contracting process and the sourcing processes they touch to create a holistic and integrated sourcing approach and ensure the procurement and supply chain function’s sub-processes are seamlessly integrated.
• Addressing less than optimal contract management systems that are not integrated with P2P and other operational systems, resulting in cost leakages.
• Eliminating unrestricted PO systems without any category strategy or contracting policy constraints, which contribute to an increasing amount of spend not under contract.

These actions are likely to require change management and the introduction of new tools and templates.

Some organizations that have successfully undertaken this transformational journey have established a Procurement Center of Excellence (CoE). A CoE can be helpful as it will be centrally responsible for creating a digital infrastructure that allows the process owners to rapidly roll out new processes, measure effectiveness, and recalibrate as needed.

Above all, companies should take this effort seriously, consider all the factors, and seek out the right strategic partners to accelerate the innovation process. A transformed procurement strategy will pave the way for the future.